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Social Justice and Social Security Committee

Meeting date: Thursday, May 26, 2022


Contents


Low Income and Debt Inquiry

The Convener

We turn to our next item of business, which is an evidence session for our inquiry into low income and debt. We are taking evidence from Richard Dennis, the Accountant in Bankruptcy. Welcome to the committee and thank you for joining us.

Before I begin, I remind everyone that broadcasting will operate your microphones. We have about an hour for this session, before we hear from the Scottish Commission on Social Security at around 10.30 am. Richard Dennis will make an opening statement.

Richard Dennis (Accountant in Bankruptcy)

Thank you for giving me the opportunity to come and talk to the committee. I will start by giving a huge round of thanks to your broadcasting colleagues, who have spent the last half an hour sorting out my technical issues and getting me connected. Their support and their calm is much appreciated.

I am unlikely to have at my fingertips all the details, figures and facts that the committee might want. Where that is the case, I promise to provide data in writing as quickly as I can after this session.

People in unsustainable debt clearly need help, and my agency does important work in getting people a fresh start. I have listened to the evidence that you have had from other contributors and it has been pleasing to hear that, in spite of all the difficulties of running a public service during Covid, none of your witnesses has suggested that the way my agency has been delivering the statutory debt solutions during the pandemic has caused unnecessary concern or hardship for the people we all want to help.

I do not want to overplay our importance, however. In the first quarter of this year, around 280 people a week entered a statutory debt solution. That adds up over time: 280 people a week becomes 1,000 people a month and 12,000 people a year. At any one time, about 50,000 people are going through a statutory debt product. That is a significant share of the families who are in unsustainable debt in Scotland, but it is a far smaller percentage of the people the committee is thinking about how best to help. We are part of the answer, but we are only a small part of the answer.

I also wanted to say up front that, at the moment, we have not seen the number of new personal insolvencies rising sharply. That is still well below pre-pandemic levels, even if not quite as low as it was right at the start of lockdown. While you might expect that it is too early to see the impacts of the cost of living crisis coming through in our numbers, it might be a bit more surprising that the economic impacts of the pandemic are not showing in the number of people entering statutory debt solutions.

I was hoping, looking through the evidence, that I might have had something interesting to say about energy debt, which I suspect is very much on the committee’s mind. It is perhaps quite interesting to hear that, if you look at the bankruptcies awarded so far this year, gas and electricity bills are not a significant share of the debts that are being covered, nor are they an increasing share. They are less than 1 per cent of the value of debt that has been declared. That may not be unexpected; it is perhaps too early to see energy debt because the big cost increases are just beginning to hit people.

What I can say, and what you might want to pursue later on, is that looking across last year, the average monthly payments in a debt arrangement scheme debt payment programme were around £160 a month and in the average trust deed they were around £150 a month. Clearly, if you are looking at a £100 a month increase in energy costs alone, that will have significant implications for the viability of those payment plans, although news coming from elsewhere later today might change those figures quite substantially.

That is probably enough of an introduction. I will do my best to answer the committee’s questions.

Many thanks for those opening remarks. I will hand over to members for questions and Paul McLennan will kick us off.

Paul McLennan (East Lothian) (SNP)

Good morning, Richard. the review of the statutory debt solutions is on-going—I think that the stage 2 recommendations have just been published. Are you aware of any timescales for introducing those recommendations?

Richard Dennis

Quite a few of the recommendations would require primary legislation. As you will know, the Government announces primary legislation for the coming year in September. Were it to want to take forward some of the recommendations in that timeframe, we could indeed be ready to pursue a bill in the next year or two, should that be attractive to the Government to do so.

The next stage of the review is obviously stage 3. Do you have a timeframe for that?

Richard Dennis

The minister’s working group is meeting again this afternoon and that will be one of the topics for discussion. Stakeholders have been quite clear that they want this to take the time needed to get it right. They are not looking for something quick; they are looking at a process that might well run for a year or two and do a fundamental strategic look. We will talk to them again this afternoon about exactly how best to take that forward.

Paul McLennan

The review outlines the work that stage 3 is likely to look at. One of the key topics is an

“assessment of existing debt solutions”,

to see whether they are “fit for purpose”. You just mentioned fuel poverty and so on. Will that come into the equation? Some of the evidence that we have heard has been about moving away from the traditional debt solutions for credit issues and people’s expenditure exceeding their income. Will that play a part in, or be a wider context for the stage 3 review?

Richard Dennis

It will certainly set the background and some of the context. I do not know whether you have had a chance to go through the stage 2 reviews. You will see that people are largely saying that we need to make adjustments and tweaks but, generally, the whole stakeholder community thinks that the solutions that we have in Scotland are working quite well at present. Some of the witnesses have even said that we have a world-class system. It has been nice to look down south and see them copying some of our initiatives up here. They are hoping to introduce their equivalent of DAS, for example, early next year, I think. They are just moving to catch up to where we are.

We have not really heard calls, either in the stage 2 working groups or in the wider debate, for fundamental reform, but I will be interested in the committee’s views on whether the evidence you have heard also supports that conclusion that our system is broadly right at present.

We will now ask questions on the theme of balancing the interests of creditors and those of people with debt problems. The deputy convener, Natalie Don, will kick us off.

Natalie Don (Renfrewshire North and West) (SNP)

Good morning. How should statutory debt processes in Scotland be designed to improve outcomes specifically for people on low incomes? The Child Poverty Action Group has stated that debt processes should support the Scottish Government’s national mission on child poverty. How do we make that a reality and achieve the correct balance? For example, would it be an option to have different processes in place for those on low incomes or those on benefits?

Richard Dennis

To some extent, we have that already in that the minimal asset process bankruptcy is specifically for those who have no surplus income. Of the categories that you have been talking about, a lot of folk will fall into that category. In fact, if you are looking at people running deficit budgets and so on, those are precisely the people whom MAP bankruptcy and perhaps the moratorium are there to help.

Bankruptcy cannot be the answer for families that just do not have enough to live on. You cannot have a system designed so that you go bankrupt, you get straight back into unsustainable debt, you go bankrupt, you get straight back into unsustainable debt. That does not work in the longer term. Bankruptcy has to be there as a last resort for people who have got into a position in which giving them a fresh start actually does give them a fresh start and a chance to get their life sorted out. It is a very significant step and it has big implications. We cannot see it as the answer to whether people have enough income, which is a question that needs to be addressed through other means; largely, I suggest, through the benefits system.

Natalie Don

In relation to private debt, should lending companies, and specifically those that target people on low incomes, have a legal obligation to ensure that anyone they provide a loan to is, in the first place, in both a mentally fit state and a financial position from which it is likely that they will be able to repay any loan that is provided to them?

Richard Dennis

The second condition is delivered by the Financial Conduct Authority regulation that requires customers be treated fairly.

On the first condition, about mental capacity and mental state, clearly you are absolutely on the money that debt and mental health are very strongly linked. One of the more interesting initiatives from down south that we should be looking to copy here is the special protection for people in mental health crisis circumstances. Whether you can put a duty on a creditor to assess a debtor’s mental state before making a loan, however, will require quite a lot of further thought.

Natalie Don

Obviously, mental health issues can be exacerbated by debt, but they can also be brought on by debt. It is a really tricky system and it seems to be exacerbating mental health issues more and more. Figuring out how to tackle that is the issue.

My last question on this theme is whether more retrospective protection should be given to individuals who were provided a loan when the company should reasonably have known, or did not make the effort to confirm, that there was no realistic chance that the individual would be in a position to repay the loan. Some private lenders that have cropped up recently are providing loans and doing very few background checks to make sure that the person’s income is enough to cover it. Should there be more retrospective protection?

Richard Dennis

You are getting a long way away from my area of responsibility here. I would say that, regardless of the state of the individual and the state of their income when they took out a loan, if they apply for a bankruptcy and it is awarded, their debts are written off regardless of the circumstances in which they originally took them out, unless it can be shown that there was fraud going on.

Companies do not have an incentive to lend to people who cannot repay, because people who run up unsustainable debts will come through my doors and those debts will be written off and the creditor will not get any money back. It is hard to see a business model where it is in the company’s interests to lend money unsustainably.

One of my other reflections—I suspect that you will want to come to this, given the evidence that you have heard from the debt advice charities and others—is that the problems in pursuing debt are as much with the public sector as they are with the private sector. I suspect that that is partly the result of the FCA getting more and more muscular in the way it has been cracking down on one area of poor lending after another. Payday loans have been very strongly regulated now. There is work going on on catalogue loans and hire purchase loans. The FCA deserves a lot of credit for the general duty of treating customers fairly and for radically changing the marketplace in the last 10 years or so, just by its very proactive approach to regulating where it thinks that there are problems.

Natalie Don

Absolutely. We have heard throughout the inquiry that public debt seems to be more of a problem and I know that we will come on to that later. We have rightly focused on that a lot in this inquiry, but there are some little things about the private side that I still have problems with. For example, we have talked before about some of the companies that are popping up that allow people to buy things and spread the payment over three amounts. People who are getting those loans are incurring minimum payment charges on them and are already in a great deal of debt as it is, so there is something to be done there. Somewhere along the line, the checks are not there.

Thank you for your comments, Mr Dennis. Convener, my questions on this theme are finished.

09:45  

Jeremy Balfour (Lothian) (Con)

Good morning, and thank you for coming. I have a couple of questions that follow on from the deputy convener’s questions. Do you know what the percentage is of public debt for the people who come to you with bankruptcy? How much of the debt is because of either rent arrears or council tax?

Richard Dennis

I have some numbers with me, but it will take me a while to pull them together. Creditor petitions for bankruptcy are currently very low but, in the first three months of this year, in well over 60 per cent of those, the creditor was a council. Traditionally, Her Majesty’s Revenue and Customs is the other big creditor that takes action against debtors. It is just restarting its debt collection work, so its numbers are not in the figures for the past three, four or five months. However, over the past two or three years, probably around 65 to 70 per cent of all creditor petitions come from councils and HMRC.

The other big problem debt relates to the Department for Work and Pensions collecting overpayments of benefits. Compared to other creditors, the DWP is perhaps a relatively aggressive creditor in pursuing debt.

Jeremy Balfour

That is helpful. Is one of the issues that creditors are trying to secure the debt against other debts and so are almost going forward with legal action to secure that? Is there any other way that we can prevent people from having to go to bankruptcy while protecting creditors and having the debt repaid at some point, or is bankruptcy the only way around that?

Richard Dennis

I am sorry to give this cop-out answer, but it depends on the individual circumstances. There is a large category of people in unsustainable debt whose income will not allow them to repay it, and they need to go bankrupt—they need a fresh start. There is another category of people who can, for example, use the debt arrangement scheme and who can pay their debt back but who just need time to do so. The scheme gives them protection from their creditors, freedom from interest and charges and an extended period to pay back the debt principal. The issue very much depends on the circumstances of the individual.

My final question will just push that a bit further. With public debts to local authorities, is there any other way that local authorities could act without having to put people into bankruptcy?

Richard Dennis

Yes. I am sure that if you have the Convention of Scottish Local Authorities or local authority finance directors in front of you, they will talk about their moves to enhance their fairer collections policies. They tell us that they quite often consider writing off debts when they realise that there is very little chance of the money being collected. If a debtor is not in a position to pay, there is no point in the local authority pursuing them. I am sure that you will have heard from local authority advice services that local authorities fund lots of work, either through Citizens Advice Scotland or through their own services, to help people. The closer that their debt collecting and advice providers can work together, the better the outcome for the individual and the council. If you were to talk to local authorities about their fairer collection policies, you would see that coming through more and more.

Paul McLennan

The stage 2 working group report refers to the protected trust deed. I notice that there was a bit of debate on increasing the minimum debt level, which is currently £5,000. The exact wording of the report is:

“This remains a contentious issue with sharply opposing views”.

Will you say a bit more about that to help us understand the thought process on both sides?

Richard Dennis

I do not want to put words into the working group’s mouth, but I will try, and no doubt the group will write in and correct me if I get it hopelessly wrong.

One side of the argument is that, if you raise the minimum debt level, you close access to the product to a group of people, and there may be people whose debts are just over £5,000 and for whom it is the right solution. However, in running a trust deed, if someone’s debts are around £5,000, it is quite likely that the minimum contributions that they will make over the four or five-year period will also come very close to £5,000, so they are close to being able to pay off the debt through a debt arrangement scheme, for example.

At the same time, running a debt solution has significant costs. If someone is paying, say, £100 a month over four years, that is £4,800, and it is likely that 80 to 90 per cent of that will be consumed in the costs of the product and very little will get back to creditors. Those who think that the minimum debt level should be put up a bit will be taking the position that there might be a better alternative for someone who can afford that level of contribution, and that it is not hugely fair to creditors to see the sector—the administrators—taking that provision from the debtor and to have so little going back to the creditors.

It is about the balance between closing off access to the product, which might be really valuable for certain people, and getting the balance right across the sector.

I will need to read that back in the Official Report to understand and process that answer. It is a complicated picture, which is why it is a polarising option at the moment.

Emma Roddick (Highlands and Islands) (SNP)

So far, we have talked about how future policy will balance the needs of creditors and those in debt, but where is that balance now? We have heard from people who have debt and low income that, even if they are successful in claiming social security, most of their monthly payments can end up going towards paying off debt. Is there currently a balance in considering the interests of people who are in debt, or are we a little too interested in making sure that creditors have their debt repaid, including interest?

Richard Dennis

It is a difficult question, with a number of factors involved. By the time that people come through our doors, their debt is unsustainable and they will not be able to pay it back, so they have that debt written off. When people go through the minimal asset process, nothing goes back to creditors—the debt is just written off. Is that harsh on creditors? Probably not, because you cannot get blood out of a stone.

On what happens before people come to our doors, I suspect that the debt advice agencies will have said pretty clearly that people should seek advice earlier than they do. Traditionally, people do that a year, 18 months or two years too late. During that period, the debtor has significant stress, the creditor has significant expense and nobody gets any money in the end.

It would be helpful if we could do more to make better information available to people in clearer terms—my agency and others plan to do quite a lot on that over the next couple of years—and if we looked again to see what we could do about reducing the stigma of bankruptcy. Particularly during the pandemic, there might have been a change in society in that people no longer assume that it is necessarily an individual’s fault that they are in debt. I hope that, as a result, people will be more prepared to ask for help when they need it. However, the question of the balance between creditors and debtors before they come my way is a bit beyond my remit.

Emma Roddick

The deputy convener touched on the issue of mental health and the responsibility to freeze interest on the debts of people who are suffering illness. Taking that further, should a similar approach be taken where interest is being charged on debts that we can be reasonably certain will be paid only through social security?

Richard Dennis

As I said, once a customer comes through my doors and takes a statutory debt product, the debts are either written off or, in a debt arrangement scheme, the interest and charges are frozen. The more challenging question is how to allow somebody who is in a mental health crisis the time to deal with their debts. You will have noticed that, although the breathing space scheme down south allows less time for the ordinary debtor than is allowed in our moratorium, it has special extended provisions for those who are in mental health crisis. That is a very interesting initiative, although I do not think that it is quite right, and it is not being used very much yet. However, we can learn from the way in which it is panning out in practice. We should certainly think about copying that initiative up here.

Foysol Choudhury (Lothian) (Lab)

Good morning. Given the current economic pressure, people are increasingly getting into debt just to live, and the way in which the debt is recovered is leaving those people destitute. Do you think that the balance between creditor and debtor is right in this situation?

Richard Dennis

Could you give me an example of the situation that you have in mind?

People are borrowing extra money when they are in debt already. When they are taken in for bankruptcy or getting pressure, is the balance right in that situation?

Richard Dennis

I am not sure that I can provide an answer. One way to answer the question is to ask what the right level of universal credit is and whether we should have a minimum income guarantee. However, those questions are so far beyond my responsibility that I am not sure that I can be much help.

I can say that we are clear that the purpose of bankruptcy is to take somebody who is in unsustainable debt and who cannot escape from it and give them a fresh start, while bearing in mind the needs of creditors. Once people have a fresh start, the last thing that we want is for them to fall straight back into unsustainable debt. However, deciding whether they have enough income to live on is, unfortunately, nothing to do with the bankruptcy system.

We will move on to questions about the mechanics of bankruptcy. To kick us off, I will go to my colleague Pam Duncan-Glancy.

Pam Duncan-Glancy (Glasgow) (Lab)

Good morning, Richard. Thank you for the evidence that you have provided so far and the information that you gave us in advance.

I am interested in the point about minimal income and bankruptcy and how much that leaves people with. In particular, I know that the fee to access the bankruptcy options has been lowered, but it is still leaving some people unprotected. Will you say a little about the purpose of the fee and whether it is becoming a barrier?

Richard Dennis

I am happy to address the question of fees. Currently, the vast majority of people do not pay an up-front fee. The fee for the minimal asset process bankruptcy, which I think is the group that the committee will be most interested in, is now £50, where people pay a fee. Is that a barrier? It will be for some people, because getting together £50 can be a stretch. However, bankruptcy is quite a serious step to take, and we want people to pause and think about it. Also, bankruptcy has to be funded.

The fees down south are significantly above ours. The current fee for full administration bankruptcy down south is £680, compared to our £150, and for the debt relief order down south, which is the equivalent of our MAP, the fee is £90 as opposed to our £50.

10:00  

I make a huge loss running bankruptcy cases. On a full administration bankruptcy, on average, I lose over £1,500 for every case and the taxpayer very kindly picks that up for me—or the Scottish Government kindly sends across the money that we need to keep the system running. It is a question of balance. Clearly, you could abolish fees, and you might expect an increase in bankruptcies as a result. I would expect to see an increase in the support that I require to continue to administer them. That is a political judgment and, in reality, I do not have strong views on the matter one way or the other.

Pam Duncan-Glancy

Approximately how much do you collect in fees? You said that the majority of people do not pay, but it would be interesting to know what that figure is. I then have a further question that is still related to bankruptcy but slightly different, so I will pause.

Richard Dennis

Let me dig into the statistics that I have in front of me. In the past year, only 19 per cent of MAP cases paid an application fee, so four out of every five paid nothing.

Do you collect figures as to how much money you get from the total fees paid to you?

Richard Dennis

For MAP bankruptcies, it would be no more than a couple of hundred thousand pounds.

Pam Duncan-Glancy

Forgive me if my next question is slightly outwith your remit. As you say, when people become bankrupt, it is a fresh start and I can understand why it is a helpful option, but it can often result in people being unable to get further borrowing. I am not suggesting that people should then get into a cycle of borrowing, but even things such as getting a mobile phone or broadband contract can be difficult, and those are pretty essential. We have heard about that issue from a lot of witnesses. Do you have any views on what we could do about that or how we could improve that situation for people?

Richard Dennis

That is largely a question of how the credit reference agencies react to either unpaid debts or statutory debt solutions. I would say that the issue is much larger than just bankruptcy—[Inaudible.]

Richard, we seem to have lost connection with you.

I was looking forward to that answer as well.

We will suspend briefly until we can get Richard back.

10:03 Meeting suspended.  

10:10 On resuming—  

I think that we have managed to get you back, Richard, which is fantastic. Can you hear me okay?

Richard Dennis

Yes—apologies for that. I gather that the Scottish Government’s SCOTS network does not like your network.

How ironic is that? I will hand back to you to finish answering Pam Duncan-Glancy’s question.

Richard Dennis

Could you just remind me how much you heard, Ms Duncan-Glancy?

Pam Duncan-Glancy

Thank you—and welcome back.

My question was about people’s ability to borrow after they have been through the bankruptcy process, particularly for things like mobile phones or broadband—which I guess is not so much about being able to borrow as about being able to get credit. I think that you said that that issue did not specifically relate only to bankruptcy, and then you mentioned credit reference agencies. That is as much as I got.

Richard Dennis

Well, my main point was about credit scores. Credit reference agencies will take into account missed payments, defaults and bankruptcies in different ways. At least when somebody goes bankrupt, they are starting the process of repairing all that, although I think that it takes seven years before a bankruptcy fully comes off a credit reference report. You could legislate for that; indeed, there are countries in the world that run credit reference agencies as public bodies. It would be quite a radical change.

Pam Duncan-Glancy

Thank you—that was helpful. With regard to the seven-year period that you have just mentioned, can you give us any examples of that from anywhere else in the world? Is seven years the average period? Is it longer or shorter? Where do we sit in that respect?

Richard Dennis

I am afraid that I do not know. We could try to do some research. I have a network of international colleagues whom I could ask, but it might be some time before I could come back to you on that.

Thank you. Those are all my questions on this theme, convener.

Jeremy Balfour

Most of my questions have been covered, but there is one area that I wanted to pursue briefly. From the evidence that we have taken over the past number of weeks, many people are in a crisis situation that might get worse into the autumn and early next year. However, a lot of what you have been talking about—primary legislation, more reviews and recommendations and so on—is longer term. If there were the political will, what things could be done quickly and immediately to make people’s lives easier? In your opinion, is there nothing that can be done in the short term about bankruptcy to make things easier?

Richard Dennis

As I said earlier, it tends to be quite a while before people who fall into even a financial crisis seek advice and end up with a statutory debt product. We think that that gap has become smaller, but I should point out that, after the financial crash of 2008, it was not until 2010 that we started to see bankruptcies coming through in such numbers.

Other factors are involved, but it is partly that people take a while to get to grips with the fact that they need help. Advice agencies might not welcome my saying this, but anything that we can do to convince people to go knocking down their doors sooner will greatly improve their chance of getting a workable and useful solution in place.

The system is quite good. If you can see a money adviser today, you can have a moratorium in place tomorrow. The system can react that quickly already, but it requires people to take the initiative to go and see a debt adviser. Making information clearer, simpler and more accessible and ensuring that the advice is there might be the priority instead of necessarily trying to do anything legislative overnight. That said, as I think we demonstrated at the start of the pandemic, we can put in legislative changes very quickly when we need to.

Thank you.

10:15  

Miles Briggs (Lothian) (Con)

Good morning, Mr Dennis, and thank you for joining us.

I have a couple of questions on debt enforcement. Last week, we heard about protections for bank accounts and the scope to increase the protected minimum balance in accounts to £1,000. What is your view on that and, in your experience, how should that work?

Richard Dennis

In reality, this all comes down to council tax collection. There would be scope to do something on bank arrestments, if that were judged necessary and valuable, but you would be taking away from councils a tool for ensuring council tax collection. The question is whether this sort of thing hits those who cannot pay or those who will not pay, and we do not want to hit those who cannot pay. If your benefits happen to arrive on the wrong day and a bank arrestment arrives the following day, your benefits can be frozen in your bank account and cannot be accessed.

One solution would be to make it much easier to undo an unduly harsh bank arrestment, and another would be to raise the level of minimum protected balance. However, we do not have the evidence that we need here. For example, we do not know how many bank arrestments are successful. We know that more than 200,000 are served a year, but anecdotal evidence suggests that less than 10 per cent of them actually hit a bank account, because, when he serves his bank arrestment, the creditor has to guess where your bank account is. We also hear from creditors that, as soon as the debtor picks up a phone and engages, they will not take that sort of enforcement action.

In short, the evidence is not there, and we might well be in a situation where such a move is judged sensible perhaps as a temporary measure while we find the right evidence with regard to raising the level. That could be done relatively quickly, although it would need primary legislation. There are opportunities in that respect, if the committee and the Government think it a sensible move.

Miles Briggs

On council tax debt collection, we have heard how enforcement can be inflexible and, as you have said, harsh. From your experience, what levels of unsustainable council tax debt do those whom you usually support have? I do not know if you have a percentage that you can give us.

Moreover, how could the system be reformed? Could there be, say, an earlier intervention to prevent significant council tax debt from building up? Indeed, we have heard about individuals moving properties with the debt attached. Do you have any information on that?

Richard Dennis

First, I just want to correct something, because I might have misspoken in my previous answer. I was not saying that councils were necessarily unduly harsh in their use of bank arrestments. There is already a process by which you can go to court to get an arrestment that has hit your bank account to be lifted, if it is thought unduly harsh. However, as that is a court process, it will take time for a family whose benefits have effectively been frozen in their bank account to get them unfrozen again, and they cannot really wait. The question is whether the process is right; I was not suggesting that the use of bank arrestments itself was necessarily unduly harsh.

Council tax is a significant debt in bankruptcies in a way that energy bills are not, but I wonder whether that is more about the choice that people make about which bills to pay than about the burden of the different impositions. I am not in a position to judge; I am just surmising that people pay their mobile phone bill, because they need their mobile phone to be working next month, and they might not pay their council tax one month, because they think that the council will probably not do anything until the end of the year. Just because it appears so often does not necessarily mean that it is the root cause of the problem.

Do you have any anecdotal evidence of the council tax debt that people usually have when they begin the bankruptcy process? Perhaps you can provide that to the committee if you do not have it to hand.

Richard Dennis

Yes, I can provide that to the committee later. I have that information somewhere in my pack of numbers, but it will take me a while to find.

Thank you.

Natalie Don

I want to follow up on some issues that were raised by my colleague Miles Briggs. First, you have said that you will consult on changes to the law of diligence. What will be the likely timescale of that consultation, and what issues it is likely to cover?

Following on from the last question, I know that you said that there is a lack of evidence on arrestments, but I would like to know more about earnings arrestments. Will an evidence-gathering session go hand in hand with that consultation, to make sure that we find the best outcomes?

Richard Dennis

There are a number of things to address in those questions, but I can easily give you a straight yes to the last of them.

The diligence working group report has been submitted to ministers and should be published very shortly, and we are hoping to take that forward in the same timeframe as the stage 2 bankruptcy working group reports. As for the issues that are covered, the papers that the group has asked for and considered are already on the website, so I will not be saying anything that is not already in the public domain. The group looked quite a lot at the need to make the system more modern and more efficient. Diligence legislation contains some bizarre requirements; for example, if you want to take diligence against a ship, you have to nail your court paper to the mainmast, which can be quite difficult in modern terms. Quite a lot of work will be required to make the process better and more efficient.

The group has also done quite a lot of thinking about information disclosure orders. Some legislation dealing with those matters is already on the statute book, but we need the detailed regulations necessary to bring it into force, and I think that you can expect that to be one of the main thrusts of the work as we move forward. Indeed, there are a number of other issues for which there is legislation on the statute book that has not yet been brought into force, and the group has decided that it would be sensible to treat that particular issue alongside treatment of the family home in bankruptcy and has suggested that they be carried forward jointly in stage 3 of the bankruptcy review.

Natalie Don

My colleague Miles Briggs also rightly highlighted the proposal to increase the minimum protected balance, and we have also heard calls for earnings arrestments to be more flexible and better co-ordinated. For example, no effort is made to assess an individual’s circumstances prior to earnings arrestment or to find out whether, for example, they have children. Will further reforms of the earnings arrestment process feature as a core part of this consultation?

Richard Dennis

There is significant scope for improving the administration of conjoined arrestments. Indeed, it is one of the areas that we will be looking at.

The other issues are more complicated and need quite a bit of thought and some consultation. It is hard to expect a creditor to know a debtor’s details and individual circumstances when they go to court for an earnings arrestment. They go to court for an earnings arrestment, because the debtor is not co-operating in paying the debt, and they want a court order so that the debt can be directly deducted from the debtor’s salary. It is quite hard to put the burden on the creditor—or even the court—to assess the debtor’s circumstances and adjust the level of the earnings arrestment on that basis.

As for your question whether things should be made more flexible, once an earnings arrestment is in place, it is for the employer to administer it. They deduct the relevant amount from the debtor’s salary and send it on to the creditor. If you change that too often, it imposes significant burden on employers, and a balance needs to be struck in that respect. The suggestion that the creditor and the debtor come to an agreement that would allow the earnings arrestment to be regularly adjusted up or down would, as I have said, put a significant burden on the employer, and we would need to think through the impacts of such a move on payroll and other systems.

Natalie Don

We know that earnings arrestments are closely related to council tax debt, and I understand the difficulties associated with creditors knowing everything about an individual’s circumstances. If local authorities were to continue to outsource to debt collection agencies—and given that authorities know more about an individual’s details—would it make sense to put more of an onus on them to provide those details to a debt collection agency so that these arrangements could be worked out? Given your earlier comment that things work better when there is co-operation between councils and the debt collection agency, would it be better to put more of an onus on the local authority?

Richard Dennis

The burden has to be very much on local authorities in determining their collections policy on which debts to chase, and it is right that councils that have gone a long way down the fairer collections route are held up as a beacon that others should be following. Councils tend to know their clients fairly well both on the revenue and debt-chasing side and on the advice side, and the closer they can pull together their own in-house people who provide advice to customers and the people chasing them for their debts, the better. Quite a lot can be done well away from statute and control, simply because it is in the council’s best interests to make the right judgments here. After all, chasing the wrong debts will cost them money, and they will not get anything back.

Thank you. I have no more questions, convener.

Our last question in this session is from Pam Duncan-Glancy.

Pam Duncan-Glancy

I want to follow up on the breathing space concept. Earlier, you mentioned the scheme down south and said that although there were things that we should look to in it, there were also things that you had questions about. What questions do you still have? Could something similar could work here?

Richard Dennis

I am convinced that our moratorium is better than the main breathing space scheme down south. I can see an argument for freezing interests and charges—it would be a nice-to-do—but I have to say that I rather doubt whether freezing interest and charges for six weeks will make such a significant difference in light of the administrative cost and burden imposed by the scheme.

A lot of my concern is about take-up. The numbers that have taken up the breathing space initiative down south are less than 10 per cent of the numbers that were expected from the impact assessments undertaken when the policy was being put through Westminster, which suggests that something is not quite right about the way in which it is administered.

I think that we can learn something from the special provision that has been put in place for people in mental health crisis, and I can see a need for action in that respect, but I have to say that the provision is not being used very much down south, which again suggests that they do not have it quite right. That said, we can learn a lot of lessons from that initiative and come up with a good proposal for the committee and Scottish Government to think about with regard to whether it can be introduced up here in a way that delivers greater benefits.

Thank you—that was really clear.

The Convener

Thank you for your time this morning, Mr Dennis. It would be very helpful to the committee if you could get back to us by 8 June, if possible, with the information that you so kindly said you would provide to us. That would allow us to have the information when we need it.

That concludes our penultimate formal oral evidence-taking session for this inquiry. We will be hearing next from the Scottish Government, and I should also say that the committee will be meeting its experts by experience panel informally on 6 June to take stock of the evidence that has been heard and hear their suggestions for improvements.

I suspend the meeting for about five minutes for a changeover of witnesses and a comfort break.

10:30 Meeting suspended.  

10:36 On resuming—